Support

A cookie is a piece of data stored by your browser or device that helps websites like this one recognize return visitors. We use cookies to give you the best experience on BNA.com. Some cookies are also necessary for the technical operation of our website. If you continue browsing, you agree to this site’s use of cookies.

Marketing Services

Bloomberg Next marketing services allow clients to elevate their brands and extend their reach through our established and trusted expertise, enhanced with engaging event production, appealing design, and compelling messaging.

The United States has not agreed to participate in the Common Reporting Standard (CRS), relying instead on the Foreign Account Tax Compliance Act (FATCA) regime enacted
in 2010 and initiated in 2014. United States participation in CRS is highly unlikely. Even with a change in control of Congress, CRS may be viewed as unnecessary because
FATCA has been implemented by a series of intergovernmental agreements (“IGAs”), most
of which provide for reciprocal exchanges of information.

While reciprocity is a feature in most of the IGAs entered into by the United States
with its FATCA partners, the information provided by the United States to a FATCA
partner is quite limited. The reciprocal IGAs do not require the United States to give its FATCA partner any
information about:

cash accounts held by entities, even entities resident in the FATCA partner country;

non-cash accounts, whether held by individuals or entities, even those resident in
the FATCA partner country, unless the accounts earn U.S.-source income;
or

the identity of the persons who control entities with U.S. accounts — again, even
if the entities or the persons who control them are residents of the FATCA partner
country.

The United States has limited reciprocal disclosures to be made to FATCA partners
and does not require its financial institutions to gather the same account information
which FATCA requires regarding the foreign financial accounts of U.S. citizens. However,
non-U.S. owners of U.S. entities are not exempt from other reporting and recordkeeping
requirements. In a Notice of Proposed Rulemaking published on May 10, 2016, the IRS
proposed amending Reg. §301.7701-2(c) and §1.6038A-1(c) to create a special rule imposing §6038A reporting requirements on U.S. disregarded entities that are wholly owned by a foreign
person (individual or entity). When finalized, the regulations will treat foreign-owned single-member LLCs (FSMLLCs)
organized in the United States as corporations. Consequently, FSMLLCs will be required to:

obtain entity identification numbers from the IRS which will require identification
of a natural person related to the LLC;

annually file Form 5472,
Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation
Engaged in a U.S. Trade or Business
;

identify “reportable transactions” between the LLC and any related parties, including
the LLC's foreign owner; and

maintain supporting books and records.

Although financial institutions do not have reciprocal obligations under FATCA to
gather information regarding foreign depositors and their U.S. accounts, FinCEN has
issued final rules effective July 11, 2016, to strengthen customer due diligence efforts
of “covered financial institutions.” Covered financial institutions for purposes of FinCEN's customer due diligence requirements
include banks, federally insured credit unions, broker-dealers, mutual funds, Futures
Commission Merchants, and introducing brokers in commodities. The requirements apply to corporations, limited liability companies, general partnerships,
and other entities created by filing public documents or formed under laws of a non-U.S.
jurisdiction (“Legal Entity Customers”). Covered financial institutions must obtain
the identity of an account's “beneficial owners” whenever a Legal Entity Customer
opens a new account
(including new accounts of existing account owners).

Personal identifying information must be obtained by the covered financial institution
regarding each beneficial owner, although the covered financial institution is permitted
to rely on the Legal Entity Customer's certification regarding its beneficial owners.
A beneficial owner is each individual who owns 25% or more of the equity interests
in the Legal Entity Customer. Even if no beneficial owner meets the 25% threshold,
the covered financial institution must obtain identifying information for at least
one individual who exercises significant managerial control over the Legal Entity
Customer.

Planning for Financial Privacy

As observed above, the United States is glaringly absent from the list of countries
participating in CRS. Similarly, U.S. trusts are glaringly absent from FinCEN's list
of Legal Entity Customers, as trusts are not formed by filing public documents. Consequently,
non-U.S. persons are enabled to deposit assets with U.S. financial institutions without
disclosure of beneficial ownership when the accounts are established by a U.S. resident
trustee. How then to structure and draft the trust instrument?

Settling a Trust in the United States: Generally, the presence of a trustee in a particular U.S. jurisdiction (one of the
50 states or District of Columbia) and the trust instrument's invocation of the law
of the jurisdiction in which the trustee resides is sufficient to cause the trust
to be viewed as established in a particular U.S. jurisdiction for state law purposes.
In order to avoid CRS reporting, the trust must minimize its contacts with those jurisdictions
participating in CRS disclosure. The presence of trustees in CRS jurisdictions is
to be avoided. In order to avoid CRS disclosure, the trust established in the United
States can only custody its assets with U.S. financial institutions (or financial
institutions in another non-reporting jurisdiction). Otherwise, if the financial
institution is in a CRS jurisdiction, the financial institution will be obligated
to disclose not only the owner of the account (that is, the U.S. trust) but also “controlling
persons.”
For CRS purposes, the controlling persons of a trust include the settlors, trustees,
trust protectors, beneficiaries, and any other natural person exercising ultimate
effective control over the trust.

U.S. Tax Laws

While the United States is desirable as a financial haven, its comprehensive tax system
must be reckoned with. The United States taxes residents (including trusts deemed
resident in the United States) on worldwide income including interest, dividends,
rents, annuities, and other types of investment income as well as gains realized on
the sale of foreign and domestic assets. The United States also has a comprehensive estate tax system which taxes individuals
domiciled in the United States on the fair market value of worldwide assets. The
estate tax exemption for nonresidents is limited to $60,000. Assets in excess of the exemption are subject to estate tax rates of 18–40%. The U.S. estate tax is imposed on the entire fair market value of the assets included
in the decedent's gross estate (less debt and other liabilities to which the assets
are subject).

Designing the trust to make it nonresident for U.S. income tax purposes, as well as
further planning to minimize U.S. income taxes and avoid U.S. estate taxation, will
be discussed in a subsequent commentary.

All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to books@bna.com.

Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)

Notify me when updates are available (No standing order will be created).

This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to research@bna.com.

Put me on standing order

Notify me when new releases are available (no standing order will be created)